Now that was an easy ride! Those Invest Diva students who followed my advice, waited for the FOMC statement and a break below 1.11 to enter a bearish position on EUR/USD, made some delicious pips by Friday and relaxed over the weekend. But what’s next for Mr. Euro and Ms. USA on the forex dance floor? Aha! It’s time for another Diamond Analysis. Gear up Y’all! This could be a wild ride.
1- Potential European QE next month
Wait a minute,what the heck is QE? For new Invest Diva’s joining us, let me explain that QE stands for Quantitative Easing, which is a type of monetary policy used by central banks to stimulate the economy when standard monetary policy has become ineffective. Normally a QE leads to weaker currency dance moves.
Many analysts are now thinking that the European Central Bank (ECB) will start another round of Quantitative Easing next month. In which case, Mr. Euro would potentially get crushed on the forex dance floor against most other currencies including the US dollar (Ms. USA.)
Wednesday is a holiday in the US, Canada and Europe, however ECB’s Super Mario Draghi will be taking a stand on the podium regardless of the public holiday, and potentially move the Euro. He will also speak on Thursday (twice) at 9:30 and 11:30 AM GMT. I wonder what he has to say?
The future of Mr. Euro now depends on Mr. Draghi’s tone, Eurozone economic data and a potential US interest rate hike.
2- Fab US jobs report increased 2015 rate hike potential
As I mentioned in my previous update, Fed head Janet Yellen bluntly said last week that the Federal Reserve could raise interest rates in December 2015, although the raise could be very small and gradual. To top this off, the very important Non-Farm Payrolls came in fantastically positive after her testimony, giving many analysts further reason to jump on buying Ms. USA, pushing her higher up on the forex dance floor.
We only have a few more unemployment claims data coming out before the New Year Ball drops in NYC, and a few more testimonies from the Finance Diva of the US. Janet Yellen. Each and every one of these could equally affect Ms. USA as speculations on the rate hike get wilder.
Ms. Yellen is scheduled to speak again this Thursday at 3:30 PM GMT right after US jobs report at 2:30 PM. I’d wait till then before concluding on a rate hike decision.
3- EUR/USD broke below two important pivot levels
After months of consolidation, the Euro / US dollar pair finally broke below the key support level of 1.11 last week, and then below then next support of 1.08, currently testing below 1.07. We had previously marked these two as long term pivots. Put this together with the break below the Ichimoku cloud and the upward channel we pointed out before: These could indicate further downward pressure on the pair with (a little above) 1.05 as bearish target.
I said a little above because the naughty currency pairs sometimes change their mind right before a psychological level just to piss the forex trading crowd off. As for your stop loss, remember to set it a bit loose to avoid getting kicked out prematurely.
4-Long Term Trading Strategy: Parity Back on the Table?
In the short term time frame, we have selected 1.05 as a bearish target. But how about long term? I’m talking about 6 months ahead. For that, we need to get back to the Monthly chart. Although the pair has successfully broken below many key barriers, on the longer term we still need a confirmation below 1.05 to put parity back on the table. Oh, and parity means an equal value for Euro versus US dollar– EUR/USD = 1.00
Pullback scenario: If this week’s US data come in worse than expected, and/ or Mario Draghi changes his mind about QE, we could expect a pullback towards 1.11.
Bearish Scenario: If this week’s US data comes in better than expected, and/ or Super Mario continues to take his stance on a QE, the pair could reach 1.05 as soon as Friday
Here are the recommended supports and resistance levels* for short term forex trading strategies:
|Support Levels||Turning Point||Resistance Levels|
*Important Note: The support and resistance levels are not suitable for all traders and largely depend on your account size, margin and leverage. Book a private lesson to learn how to personalize your account based on our trading guide.